Fri Sep 29 04:00:00 CDT 2017

Consensus Actual Previous
Month over Month -0.1% -0.3% 0.3%
Year over Year 1.3% 1.1% 1.2%

Consumer prices provisionally fell 0.3 percent on the month in September. This saw the annual inflation rate dip a tick to 1.1 percent and equal its lowest mark since January.

The flash HICP, which is always seasonally very strong in September, posted a 1.8 percent monthly spurt but this too yielded a 0.1 percentage point drop in its yearly rate to 1.3 percent.

The minor slowdown in the annual CPI rate was largely attributable to weaker inflation in transport (2.7 percent after 4.4 percent) and in regulated energy (2.9 percent after 5.0 percent). Core inflation, which strips out energy and fresh food, declined fully 0.3 percentage points to 0.7 percent. This more than unwound August's surprise 0.2 percentage point spike and leaves an essentially flat underlying trend.

The provisional September data would seem to confirm that the relative buoyancy of the August inflation report was just a flash in the pan and quite likely attributable to timing issues. Underlying inflation may accelerate going forward but any rise is likely to be very shallow and even this will need recent signs of a stronger consumer sector to become fully entrenched.

The consumer price index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation. A provisional estimate, with limited detail, is released about two weeks before the final data are reported.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the Italy where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. As a member of the European Monetary Union, Italy's interest rates are set by the European Central Bank.

Italy like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The core CPI, which excludes fresh food, is usually the preferred indicator of short-term inflation pressures.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.